Current Surplus Research Articles

Unravelling the Financial Crisis of Sri Lanka: Exploring Policy Blunders

This study explored the political-economic turmoil in Sri Lanka, with a focus on policy implementation. It delved into the dynamics of autocratic governance and elite control within the country's extractive systems, which had evolved over decades. Employing a case study methodology using data from authenticated published sources, this research unveils how ill-conceived policies, orchestrated by China-backed politicians and naïve administrators, primarily triggered the economic crisis. Mismanagement, policy missteps, and corruption fueled widespread social unrest and protests, culminating in the economic downturn. These policy blunders include tax reductions, bans on fertilizer and agrochemical imports, excessive currency printing, and exchange rate manipulation.

Closing the gap to sufficiency-based absolute climate targets for wood buildings

This research investigated the distribution of the global climate planetary boundary (PB) on a national scale. Then it was distributed to a sector-specific carrying capacity by the principles of acquired rights (grandfathering) and sufficientarianism. Then, four wood dwellings were compared against these carrying capacities using the life cycle assessment methodology. The climate safe operating space for new dwellings is about three times larger when using the principle of sufficiency compared to acquired rights. The rationale for the sufficiency perspective is that it considers the fundamentals of a society leading to a fulfilling life. The concept disregards the current surplus elements in society, which gives more space for emissions for the remaining elements in a fulfilling society. The acquired rights reflect the current society as optimal but require systemic changes in the different sectors to reduce their total impacts to remain within climate PB while keeping the sector’s current share of impacts. However, building with wood cannot alone contribute to society staying within the climate target. The end of life contributes most to the impact due to biogenic carbon release, and energy consumption follows next. Reduction of the average yearly built area shows considerable potential to close the target gap. In addition, improving and implementing circularity, carbon capture, and material efficiency would reduce biogenic carbon’s end of life impacts. Combined with energy-positive buildings and low-carbon materials, this could be a viable mitigation pathway to explore further.

Techno-economic analysis of residential rooftop photovoltaics in Spain

In response to the European Commission's renewable energy targets for 2030, this study presents a comprehensive, data-driven evaluation of the potential for electricity self-consumption in the Spanish residential sector based on rooftop PV systems. Utilizing real-time hourly electricity demand data and various surplus compensation policies, the research highlights the significance of data granularity, indicating that annual data-based PV estimations can lead to rooftop PV self-consumption capacity overestimations when compared to hourly data assessments. Furthermore, geographical variations reveal distinct rooftop PV self-consumption capacities between urban and rural areas, driven mainly by the prevalent building typologies. This discrepancy suggests that while rural regions, with their predominance of single-family dwellings, offer higher PV generation potential due to more available rooftop space, urban areas, dominated by multi-story buildings, face significant constraints in rooftop surface availability. Economically, the current surplus compensation policy in Spain reduces the profitability of PV installations, underscoring the necessity for enhanced policies to fully utilize all the available rooftop areas in the residential sector. The study's findings, particularly the revelation that residential rooftops in Spain may not be enough to meet the current electricity demand, emphasize the need for adaptive, region-specific policies and the potential role of energy communities. Policymakers and industry stakeholders are urged to prioritize rooftop utilization, ensuring the deployment of PV systems is both promoted and economically viable, steering Spain closer to its renewable energy and sustainability aspirations.

Foreign Debt Repayment Outflow and Securities Market Volatility in Nairobi Securities Exchange, Kenya

The study was undertaken to assess the effects of foreign debt repayment outflow on the securities market Volatility at NSE, Kenya. The connection between foreign loan repayment outflow and stocks market volatility has not been fully examined, despite being the subject of financial studies. Regarding how foreign debt repayment influences the volatility of the securities market, global empirical research has yielded inconsistent conclusions. The findings are contradictory, which calls for additional research to be done in the current study to determine how international capital outflow affects the volatility of securities traded at Kenya's NSE. The study utilized an explanatory research methodology and used secondary data to focus on the listed institution at the Nairobi Securities Exchange in Kenya. The impact of outflows of foreign debt repayment on the volatility of the securities market over the research period was evaluated using the census technique. Nairobi All Share Index, a gauge of securities market volatility, was negatively and significantly impacted by the outflow of foreign debt repayments. It was determined that less foreign debt repayment causes the NSE equities market to be more volatile. The study recommends that Policy makers may need to consider whether to intervene in the foreign exchange market to prevent excessive currency appreciation, adjusting interest rates, implementing fiscal stimulus or introduce financial regulations to stabilize the securities market. Keywords: Foreign debt repayment outflow, Nairobi Securities exchange security market volatility.

The Impacts of Global Risk and US Monetary Policy on US Dollar Exchange Rates and Excess Currency Returns

The Impacts of Global Risk and US Monetary Policy on US Dollar Exchange Rates and Excess Currency Returns

Simultaneous Inference on the Korean Won-US Dollar Forward Premium Anomaly

The forward premium anomaly, which refers to the empirical failure of the uncovered interest parity (UIP), has been primarily examined by the forward premium regression of [Fama, E. (1984). Forward and spot exchange rates. Journal of Monetary Economics, 14(3), 319–338. https://doi.org/10.1016/0304-3932(84)90046-1]. Some studies apply the rolling-window regression to capture the time-varying coefficient on the forward premium, with difficulty in statistically testing the deviation of the coefficient from the UIP over time. We follow [Baillie, R., & Kim, K. (2015). Was it risk? Or was it fundamentals? Explaining excess currency returns with kernel smoothed regressions. Journal of Empirical Finance, 34, 99–111] to apply the simultaneous inference procedure to the Korean Won-US Dollar spot and forward exchange rates by estimating the time-varying coefficient from the kernel-smoothed local-linear regression and constructing the uniform confidence band to test the local deviation. We find that, while the UIP is not rejected from the baseline regression, the simultaneous inference shows that the deviation from the UIP is mainly observed during the early 2000s and 2010s. Time-variation of the forward premium coefficient tends to be significantly affected by economic uncertainties such as the interest rate, inflation, and stock return volatilities in Korea and US.

Yield curve shapes and foreign exchange rates: the term structure of interest rates model approach

ABSTRACT Exchange rates play a crucial role in the international economy. This study investigates the explanatory power of yield curve factors in exchange rate predictions for countries in three currency pairs: Japanese yen (JPY)–US dollar (USD), British pound (GBP)–USD, and Canadian dollar (CAD)–USD. The results empirically establish that each country’s yield curve factors, extracted from the term structure of interest rates model, play a key role in determining future exchange rates. Specifically, an increase in the US level factor causes depreciation in the USD relative to the JPY for the full sample period (June 1994–October 2020) and in the GBP and CAD for the post-global financial crisis period. The study’s model provides more useful information than the baseline uncovered interest rate parity model for explaining the variations in the three currency pairs. Additionally, the yield curve factors also explain the variation in countries’ excess currency returns. This study has important theoretical implications for identifying which of the two countries’ yield curve factors predominantly explain the exchange rate changes and the related policy implications. It also provides key policy insights by substantiating the association between macroeconomic variables and exchange rate changes.

Discrete-time risk models with surplus-dependent premium corrections

This paper studies discrete-time risk models with insurance premiums adjusted according to claims experience. The premium correction mechanism follows the well-known principle in the non-life insurance industry, the so-called bonus-malus system. The bonus-malus framework that we study here extends the current literature by allowing the premium correction rules to vary according to the current surplus level of the insurance company. The main goal of this paper is to evaluate the risk of ruin for the insurer who implements the proposed bonus-malus system. Two premiums correction principles are examined: by aggregate claims or by claim frequency. Further, the Parisian type of ruin is also considered, where the premium adjustment rules are different in positive- and negative-surplus environment.

WEAPONIZING THE COVID-19 VACCINE: THE GEOPOLITICAL STRUGGLE

As the world continues to navigate a global pandemic that ignores national borders, it is not surprising to find a divide between the interests of vaccine-producing countries — and their entire supply chain networks for intermediates and raw materials — and countries that are primarily reliant on these producers for their vaccine consumption. This paper puts this debate in the context of a multi country strategic game where the major players have been able to produce a vaccine for COVID-19 and control the distribution of the vaccine and all its components. To address this issue of sovereign players, some have raised the possibility of a GATT/WTO intervention into COVID-19 vaccine sale and distribution. In addition, a legal battle is taking shape over lucrative patent rights for COVID-19 vaccines, with drug companies pitted against each other and government and academic scientists over who invented what. At the heart of the disputes is the billion-dollar question: Who can claim to have invented important elements of the COVID-19 vaccines? In June 2022, the WTO struck deals on a partial patent waiver for COVID-19 vaccines. Most observers believe that this change to the intellectual property rules will have limited impact on actual production for now because a current surplus of vaccines globally means there is little demand among vaccine makers to increase output. The implications are clear. The WTO compromise has allowed the existence of high hurdles for exports of products made under such a license. Given the limited WTO compromise agreement there are several options available to solve the problem of lack of access to the COVID-19 vaccine consuming nations at this stage. First, the US Supreme Court could invalidate each of the pharmaceutical companies’ patent requests. Second, individuals could file legal actions designed to disgorge the monopoly revenue of these pharmaceutical companies. If no legal action is taken, along these lines, and the WTO compromise is insufficient to solve the COVID-19 vaccine shortages in the developing world, then the developed countries will be opening the gate to PRC delivery of their COVID-19 vaccine to the entire developing and emerging markets.

The Supervised Learning Model for Analyzing the Sportsperson Training Efficiency

The driving concept of students’ sports training involves a unique activity that is often tightly correlated to students’ efficiency and varies with the momentum of sports training. Supervised learning is one of the smart methods with positive results in the fields of classification techniques. Due to the excessive currency unit associated with sports, sports forecasting is a growing area that must be well predicted. Therefore, in this paper, sports training based on the supervised learning (STSLM) model has been proposed to evaluate and predict student sports efficiency. STSLM models are based on various variables, such as traditional student ratings, performance, and efficiency. The emphasis is on the efficiency of students predicting sports outcomes. STSLM defines evaluation methods, information sources, effective models for testing students’ sports training, and unique challenges to forecast sports outcomes. The experimental results have been performed. The suggested STSLM model enhances the efficiency ratio of 96.3%, injury prevention level of 98.2%, fitness level of 95.5%, evaluation ratio of 98.8%, and training optimization ratio of 97.2% compared to other existing approaches.

THE IMPORTANCE OF PUBLIC-FUNDED CHARGING STATIONS TO INCREASE THE RATE OF ELECTRIC VEHICLE (EV) OWNERSHIP IN INDONESIA

The current surplus of electricity across Indonesia has further underlined many opportunities to optimize the usage of electricity in many sectors; including on the issue of Electric Vehicle (EV) ownership within the country. According to the government’s projection, the state-owned enterprise (SOE) of PLN would construct 254.181 units of charging stations by 2030. However, there exists the problem of ‘chicken and egg’; in which more EV charging stations would be required to spur EV sales and vice versa. In addition to that, the lack of charging stations has also led to the disinterest from the public to purchase EVs due to fear of range anxiety. Hence, this paper is written to address the importance of publicly funded charging stations in Indonesia to help cultivate EV development within the country. Not only that, since Indonesia is the largest member country of ASEAN, it could be the ‘trendsetter’ of this issue in the region and would have the upper hand position as an early adopter. Our hypotheses suggest that not only publicly funded the development of charging stations would be beneficial to the future-buyer of EV, but also for the government itself. 
 
 Keywords: Electric Vehicle, Charging Station, Public-Funded, Range Anxiety 

Can domestic non-deliverable forwards replace the sale of international reserves? An analysis of the Brazilian experience

In the 2010s, the Brazilian Central Bank (BCB) intervened massively with domestic non-deliverable forwards (DNDFS) to offset the reversal of the global financial cycle. This article aims to investigate why the BCB used these derivatives instead of selling its international reserves, how they affected the markets, and the limits of these interventions. The main benefit of DNDFs is that they preserve the international reserves of the central bank. Since market makers use these DNDFs to hedge their supply of foreign currencies in the foreign exchange markets, the central bank can affect these markets without spending a dollar. We present evidence that DNDFs were associated with an expansion of market makers’ short dollar positions. DNDFs were also used to limit excessive currency volatility. We identified a subset of interventions aimed at offsetting excessive volatility and present evidence that the BCB could stabilize the markets on these occasions. However, DNDFs are not a panacea. If coupled with deregulated foreign exchange markets, frequent interventions may stimulate speculative activity against the domestic currency. Furthermore, they can be costly, and these costs increase the interest-bearing liabilities of the central bank, constraining the domestic policy space of the monetary authority.

Declining glaciers endanger sustainable development of the oases along the Aksu-Tarim River (Central Asia)

ABSTRACT Tarim River basin is the largest endorheic river basin in China. Due to the extremely arid climate the water supply solely depends on water originating from the glacierised mountains with about 75% stemming from the transboundary Aksu River. The water demand is linked to anthropogenic (specifically agriculture) and natural ecosystems, both competing for water. Ongoing climate change significantly impacts the cryosphere. The mass balance of the glaciers in Aksu River basin was clearly negative since 1975. The discharge of the Aksu headwaters has been increasing over the last decades mainly due to the glacier contribution. The average glacier melt contribution to total runoff is 30–37% with an estimated glacier imbalance contribution of 8–16%. Modelling using future climate scenarios indicate a glacier area loss of at least 50% until 2100. River discharge will first increase concomitant with glacier shrinkage until about 2050, but likely decline thereafter. The irrigated area doubled in the Aksu region between the early 1990s and 2020, causing at least a doubling of water demand. The current water surplus is comparable to the glacial runoff. Hence, even if the water demand will not grow further in the future a significant water shortage can be expected with declining glacial runoff. However, with the further expansion of irrigated agriculture and related industries, the water demand is expected to even further increase. Both improved discharge projections and planning of efficient and sustainable water use are necessary for further socioeconomic development in the region along with the preservation of natural ecosystems.

The Dispensable Surplus Dairy Calf: Is This Issue a "Wicked Problem" and Where Do We Go From Here?

Surplus dairy calves consist of all dairy bull calves and any heifer calves not needed as replacements for the milking herd. The fate of these surplus calves varies by region; for example, in Australia and New Zealand they are often sold as “bobby” calves and slaughtered within the first weeks of life; whereas, in North America they are normally sold within the first weeks of life but reared for 16–18 weeks as veal or longer as dairy beef. Regardless of region, demand for these calves is often very low, driving down prices and in some cases leaving farmers with no alternative options other than on-farm euthanasia. The notion that dairy cows must give birth to produce milk and that the calves are immediately separated from the dam, many of which will end up immediately being sold as surplus calves, has become a topic of public concern. These concerns have increased given the growing number of pictures and stories in the media of on-farm euthanasia, dairy calves being transported at very young ages and frequently receiving sub-standard levels of care. In this paper we describe the status quo of this complex, value-laden issue that without transformative change is at great risk for continued criticism from the public. Moreover, despite many attempts at refinement of the existing approach (i.e., the pursuit of technical improvements), little has changed in terms of how these surplus dairy calves are managed and so we predict that on its own, this approach will likely fail in the long run. We then set out how the current surplus calf management practices could be viewed to fit the definition of a “wicked problem.” We conclude by calling for new research using participatory methodologies that include the voice of all stakeholders including the public, as a first step in identifying sustainable solutions that resonate with both society and the livestock industry. We briefly discuss three participatory methodologies that have successfully been used to develop sustainable solutions for other complex problems. Adoption of these types of methodologies has the potential to help position the dairy industry as a leader in sustainable food production.

Mean-variance equilibrium asset-liability management strategy with cointegrated assets

This paper investigates asset-liability management problems in a continuous-time economy. When the financial market consists of cointegrated risky assets, institutional investors attempt to make profit from the cointegration feature on the one hand, while on the other hand they need to maintain a stable surplus level, that is, the company’s wealth less its liability. Challenges occur when the liability is random and cannot be fully financed or hedged through the financial market. For mean–variance investors, an additional concern is the rational time-consistency issue, which ensures that a decision made in the future will not be restricted by the current surplus level. By putting all these factors together, this paper derives a closed-form feedback equilibrium control for time-consistent mean–variance asset-liability management problems with cointegrated risky assets. The solution is built upon the Hamilton–Jacobi–Bellman framework addressing time inconsistency. doi: 10.1017/S1446181120000164

A Theory of Dissimilarity Between Stochastic Discount Factors

This paper proposes a measure of dissimilarity between stochastic discount factors (SDFs) in different economies. The SDFs are made comparable using the respective bond prices as the numeraire. The measure is dimensionless, synthesizes features of the risk-neutral moments of excess currency returns, and can be extracted from currency option prices. Linking theory to data, we provide evidence gathered from (i) the cross section of 45 currency option prices, (ii) the time series of currency returns, (iii) estimated SDFs using model-free restrictions, and (iv) structural models in international finance.This paper was accepted by David Simchi-Levi, finance.

Trade Imbalance Network and Currency Risk Premia

This paper proposes a new risk factor based on a multi-country’s trading imbalance network to explain foreign exchange rate fluctuations and currency risk premia associated with a currency carry trade strategy. We build a directed in-degree trading network of global countries linked by their pair wise trading deficit using import and export trading data collected from UN comtrade. After sorting currencies portfolios based on the centrality scores, the new risk factor, i.e., CMP, Central Minus Peripheral is created by buying central countries currency and shorting peripheral countries currency. We then use this factor to explain the risk premium of the foreign currency and currency excess returns cross sectional variations. Our results confirm the explanatory power of the new risk factor. We show that the new measure has signifcant explanatory power to currency risk premium and corsssectional foreign currency excess returns after controlling the existing risk factors of e.g., Lustig and Verdelhan (2011), Corte et al. (2016), and Richmond (2019).

Investments and portfolio structure of private pension and insurance companies in North Macedonia

The financial market in general is where supply and demand for funds are met. In other words, funds saved in the financial market are directed to investments in order to contribute to the economy. In the Macedonian financial market, the banking sector is really dominant but also pension funds and insurance funds have an active role. This research will be studied the distribution of pension funds’ portfolios in the North Macedonian financial market. The global financial crisis in 2008 negatively affected the economies and financial markets of many countries, including the USA and Europe, and the effects of the crisis continued until 2013. This negatively affected the confidence in the financial markets, and the current surplus of funds was directed towards low-risk but fixed or low-yield financial instruments. As of 31.12.2018, fund accumulation in private pension funds amounted to 1.04 billion euros, corresponding to approximately 10 percent of GDP. The total premium production of insurance companies is around 157 million euros, while the GDP ratio of premium production is around 1.5 percent. Funds collected in both sectors are generally used in treasury bills, bank deposits, and stocks traded on the Macedonia Stock Exchange and foreign financial markets.

The strategic use of auctioning revenues to foster energy efficiency: status quo and potential within the European Union Emissions Trading System.

Auctioning revenues in the European Union Emissions Trading System are likely to increase in the future. This projection is driven by recent changes within the system’s framework, which address the current surplus of emission allowances and reduce the overall cap. Considering a growing amount of auctioning revenues, it becomes even more important to assess the use of these revenues and their potential contribution to accelerate decarbonisation efforts. We argue that strategic investments in energy efficiency programmes provide opportunities for realising multiple benefits: additional emission reductions from both ETS and non-ETS sectors, lower economic and societal decarbonisation costs and support for the political process to further tighten the ETS cap. Our assessment of the status of auctioning revenue use at the EU Member State level shows that Member States have made only limited use of these multiple benefits in recent years. In 2017, no more than 21.4% of total revenues have been strategically invested in energy efficiency programmes, as Member States have officially reported to the European Environment Agency’s reporting obligations database. However, efficiency programmes funded by auctioning revenues in Germany and Czech Republic present promising cases for the strategic use of auctioning revenues. We conclude that the EU carbon price can provide important signals to investors and energy users, but auctioning revenues can also be a powerful tool in the energy transition and the strategic use of revenues needs to be accelerated in all Member States.

Assessing macro-prudential policies: the case of FX lending

This paper analyzes effectiveness and side effects of pre Basel III macroprudential policy measures to reduce excessive foreign currency (FX) lending growth in Austria to the private non-financial sector. Our series of macroprudential measures were introduced in 2003, 2008, 2010 and 2013. For assessing their effectiveness, we set up a Cournot oligopoly model with two types of loans and intra-firm competition, and apply a simultaneous equation panel model to estimate the model parameters for a quarterly data set of around 750 Austrian banks from 1998 to 2016. Our results indicate that the legally binding measures starting in 2010 were more effective than previous legally non binding measures in curbing FX lending, while banks simultaneously substituting these loans with euro loans. We show that these macroprudential measures are also effective with regard to reducing the identified risks and efficiently avoid unintended negative side effects such as credit crunches.